Consequences of Illinois' Fiscal Reputation

The perception that Illinois is a fiscal mess has some consequences, according to a new study. The analysis released by the University of Illinois’ Institute of Government and Public Affairs says that reputation cost the state an additional $80 million between 2005 and 2010, due to an increased risk premium being attached to the state’s bonds.

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That’s on top of the higher interest rates paid due to the state’s poor credit rating. In essence, Illinois is paying more because of how the state is perceived. “What we’re suggesting is that there’s gonna be some investors that just don’t want to buy Illinois bonds at any price, and then there’ll be other investors that are willing to buy State of Illinois bonds, but they’re going to have to be sold with a significant risk premium,” said Martin Luby, co-author of the study.

Luby says last year’s pension reform law should improve that reputation and bring those risk premiums down.